Mobile Payments Play Bank Durbin Defense

Wells Fargo, Bank of America and JPMorgan hope a new electronic payment platform could be a revenue generator.

NEW YORK ( TheStreet) -- Bank of America ( BAC), JPMorgan Chase ( JPM) and Wells Fargo's ( WFC) new payment system, dubbed clearXchange, could generate enough revenue in the future to offset a portion of the billions of dollars the industry could lose from limits on card interchange fees, according to industry analysts.

"It could help the banks avoid some loss of revenue from the Durbin Amendment," Sandler O'Neill analyst Jeff Harte. "This feels kind of like it did when credit cards started taking market share from checks."

The new clearXchange payment system will allow consumers to send money to each other through email, text or online.

At the moment none of the banks are charging fees to customers to use clearXchange, although the banks that sign up to use the system pay an undisclosed fee, said Mike Kennedy, executive vice president and head of payments strategy at Wells Fargo.

Bank that use clearXchange will decide individually if they will eventually charge consumers fees to use the system when it is rolled out nationally later this year, Kennedy explains.

"We have determined that there may be some cost savings from this since everything will be done electronically," Kennedy says. "Other banks that will want to join the system later on will be charged a fee similar what Wells, Bank of America and JPMorgan are paying."

A new fee revenue stream is music to the ears of bankers following passage of the Durbin Amendment to the Dodd Frank Wall Street Reform Act. Durbin would limit the amount banks could charge merchants for debit card interchange fees, costing the banking industry between $13 billion and $15 billion a year . The Fed moved the April 21 deadline to set fee standards at 12 cents-per-transaction to the end of July. ClearXchange would not be subject to any fees from the Durbin Amendment because it does not involve transactions between merchants and individuals. It is designed for individuals to transact with each other.

Kennedy could not say how much revenue the system may generate for banks. PayPal would be the banks' largest competitor in the space. eBay's Scott Thompson has said he expects PayPal's revenue will increase from $3.4 billion in 2010 to $4.2 billion in 2011, and grow between $6 billion and $7 billion in 2013. Industrywide, any revenue generated by the banks would not likely offset the $15 billion industry-wide crater that the Durbin Amendment is expected to on banks' balance sheets.

The person to person transaction system is not being designed to replace debit or credit merchant transactions, Kennedy argues.

"We have been working on this before the Durbin Amendment was in the picture. This has been in the works for our customers," Kennedy says, adding that the three banks have been developing clearXchange for a year and a half. Wells Fargo and Bank of America have been trialing the system in Arizona for the past few months.

Electronic payments is one of the few potential fee-based revenue streams left for banks, Harte adds.

"It is partially a defensive move. Consumers have been migrating toward mobile payments and to non-credit, debit card payments," Harte said. "If you are not in the space you will wind up losing market share."

Bank of America, Wells Fargo and JPMorgan are not the only three banks looking at taking a share of the mobile banking market. Google ( GOOG) and MasterCard ( MA) and Citigroup ( C) are poised to launch a mobile payment system Thursday, which would allow consumers to purchase products with smartphones rather than with debit or credit cards.

Kennedy says that clearXchange was different from Google and Citigroup's product, which would compete with the debit card interchange system and may be subject to Durbin Amendment interchange fees.

"What Google and Citigroup are launching is a point of sale payment process. We are talking about is using a mobile device to send your brother the $100 you may owe him, straight to his bank account," Kennedy says.